(a) Let X represent the volume in units — Ingrid planning expand her business taking new product She can purchase cost — chooses price how many does need sell break even

Ingrid is planning to expand her business by taking on a new product. She can purchase the new product at a cost of $8. To market this new product, she would need to spend $984 on advertising each month. The suggested retail price for the product is $14, but she is not sure if she should price her product at this amount. Answer each of the following independent questions.

(a) If she chooses a price of $14, how many units does she need to sell to break even?

(b) If she chooses a price of $12, how many units does she need to sell to break even?

(c) If she spends $1500 on advertising, and keeps the price at $14, how many units does she need to sell to break even?

(d) If she estimates that she can sell 300 units when she spends $1500 for advertising, what is the lowest price she should charge and still break even?

SOLUTION

(a) Let X represent the volume in units.

To break even,

14X – 8X – 984 = 0

6X = 984

X =164

The break-even volume is 164 units.

(b) Let X represent the volume in units.

To break even,

12X – 8X – 984 = 0